How Does Outsourcing Affect Span of Control?

Two months ago I did an article on span of control, pointing out some of the variables that make an IT manager’s span of control so unlikely to conform to any consultant-recommended norm. I received a number of positive emails about the article, but one email in particular asked about a different kind of span of control: the span of control for managing outsourced projects. Here’s an excerpt from the email:

I enjoyed your article on “The Right Span of Control isn’t a Number”, and agreed with the factors you set forth when considering the right SOC [span of control] for one’s organization. Large organizations, such as the one of which I’m a part, are increasingly outsourcing work to vendor partners. To illustrate this point, the organization I support has more onshore & offshore resources through vendor partners (more than 600) than internal employees. While our managers don’t personally manage these resources, they do manage the overall work product, and much of their time now gets split between managing their internal employees (and that body of work), and the status of deliverables being accomplished by our vendors. In many cases, it now takes managers more time and coordination to effectively execute the work than in our former non-sourced model.Do you have any thoughts on how to factor vendor partnerships into a span of control analysis? As more and more companies are leveraging these types of arrangements to reduce expenses and gain efficiency, I believe the IT industry will increasingly need to understand the impact of these arrangements on our managers.Thank you in advance,

[name and company withheld by request],

an HR person who supports IT organizations for a large insurance company

This is an interesting question, and probably one that has relevance to a number of you in companies that are doing more and more outsourcing. The question is about extending the span of control concept to take into account what some people call “virtual staff” – the people who you manage but who don’t specifically report to your organization. They’re not employees, but they have similar requirements on your time. You “hire” them (select a vendor), “fire” them (switch vendors if performance isn’t up to your expectations), do performance reviews (periodic evaluations of the vendor’s performance), manage their performance, and generally have to spend time keeping them up to date on changing business needs. They take all the time of an employee – sometimes more – and yet they aren’t usually counted in any span of control calculation.

If we’re going to accurately measure the workload of a manager, the calculation of a true span of control should count each outsourced responsibility in addition to the normal span of control count of employees. And all of the factors discussed in my July article (how well-defined the work is, tenure in the job, degree of change, etc.) apply to these virtual employees as well. But it doesn’t stop there, because there are additional factors that affect the amount of time you have to spend managing an outsourced project or service.

The Factors that Influence the Required Manager Time Per Outsourced Project
The reminder of this article lists some of the additional factors that you need to consider when looking at this span of control for outsourcing.

1. Are the outsourced projects complex?More complex projects require more management time because there are more decisions, more things that can go wrong, and a higher probability for misinterpretation of requirements. On the other hand, less complex projects and well-defined services like off-site data storage require less management time.

2. How clear are the project objectives of the outsourced projects?Can the objectives be measured objectively, or are they more vague and undefined? The more objective the measurement, the easier the project will be to manage, and the less manager time it will require. But vague project objectives will require constant clarification and discussion, and will often lead to rework and late projects.

3. How independent are the outsourced projects from each other?To what degree is the project result from one project a factor in the success of another project that’s outsourced to a different vendor? If you’re managing a combination of projects that interrelate, then your time is going to be eaten up resolving conflicts between the two vendors. And if the second vendor is being managed by someone other than you, then add even more time for trying to resolve disputes across organizations in your company.

4. How critical are the project due dates of the outsourced projects?If some part of your business – or some key financial objective – lives and dies by having the project done by a certain date, then count on spending lots of extra time making sure the vendor stays on track.

5. How risky are the outsourced projects due to things like new technology, new processes, lots of unknowns, etc.?If you’re lucky, your contract will require the vendor to absorb all of the risk. But the more risk that’s passed back to you, the more time you’ll need to spend dealing with the consequences of a risky project. And if the risk impacts the project due date, then see #4.

6. What kind of track record does the project resource have?Have they done successful projects for you before? Or do they need lots of help to be successful? Vendors with good track records require less manager time. And new vendors always require more manager time when you’re first developing a relationship, setting the ground rules, and getting to know each other’s style of working.

7. Does the vendor have a single contact person for the project?Managers who deal through a single “lead” or vendor “project manager” require less time than managers who have to communicate with multiple vendor resources for the project. But there’s a downside to the single lead. You had better be sure that your single lead person truly understands your requirements. With multiple people to talk to, you’re more likely to discover any miscommunication because the people are likely to talk to each other and discover any differences in interpretation. With one contact point at the vendor, everything is dependent on that lead project person communicating correctly with everyone else in the vendor organization.

If you go to the other extreme, and your vendor just supplies contract resource for you to manage (sometimes called staff augmentation or contract labor), then you can pretty much count on every individual contract person requiring the same amount of manager resource as would an employee. You have to give them individual direction, you have to give them individual performance feedback, and you may even have to deal with their personal problems. Your company gains because you don’t have a long-term commitment to keep the person around, but in almost every other way your manager requirements are the same as for a full-time employee.

8. How stable are the project teams assigned by the vendor to the outsourced project?Are people constantly changing roles at the vendor location? Is there high turnover? In theory, it’s not your problem (unless your vendor contact leaves), but in reality it’s difficult for the vendor to keep things moving in the right direction with constantly changing staff. And ultimately you’re the one who will have to deal with the resulting problems.

9. Are there any communication issues with the outsourced project team?Are there any language barriers between you and the vendor contact? Between the vendor contact and the rest of the project team? Communication of requirements between business people and IT people is difficult enough without having to deal with translating those requirements from one language to another. And remember that American English isn’t the same as English taught anywhere else (nor is any native language the same as that language taught to students elsewhere). You’ll have to translate idioms and reconcile alternate definitions and interpretations of the same word. This will require more manager time.

10. How familiar is the project team with the nature of the work done by the project recipient?Project requirements tend to omit things that project recipients take for granted, and sometimes it’s those hidden assumptions that cripple a project result. I’ve always had my IT employees spend some time doing the user’s job or at least watching the user perform the job. It makes a huge difference in IT’s understanding and appreciation of why the user might want a particular kind of system. Getting an outsourced team exposed to actual user work is sometimes tough to do, and even tougher if the team lives on a different continent. But if the team doesn’t get that exposure, then count on the manager being required to solve problems that are caused by that lack of understanding.

11. Is the outsourced project being done under a fixed price bid or is it “time and materials”?With a fixed price bid, vendors try much harder to totally clarify requirements before the bid is submitted. They obviously don’t want to bid on a project with mushy requirements and then get held to the original fixed price when the requirements change. So if you agree with the requirements as defined, and if the requirements don’t change, then a outsourced project with a fixed price should be easier to manage, and should require less manager time. But – and this is a huge issue – if the requirements do in fact change after the fixed price bid is accepted, then this type of vendor arrangement is likely to require more manager time than a time-and-materials arrangement. That’s because the change process for a fixed price vendor contract is usually very cumbersome and bureaucratic, and every change requires customer and vendor sign-off with a corresponding renegotiation of price.

And finally,

12. Is the outsourced project succeeding or failing?Failing projects absorb management resource like a sponge. It’s the manager’s responsibility when a project fails, so the manager has to do everything possible to keep a project from failing, or at least to minimize the amount of failure (e.g., only one week late instead of a year late).

Conclusion
Some companies have the naive view that if you outsource your work then you can get rid of managers. While it’s possible that a few lower-level manager jobs may be moved to the vendor, in most cases the demand on a higher-level manager’s time will go up when work is outsourced – not down. Outsourcing something doesn’t just move the work from your organization to another – it creates a huge gap in the middle of your business process that has to be bridged between two companies by extraordinary efforts from the manager responsible for the outsourcing. This effort is often neglected when considering the manager’s ideal span of control, and there are a lot of overloaded managers as a result. We need to remember that managing an outsourced project or service takes more time than managing an employee – not less.

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